With the Facebook (FB) IPO quickly approaching on the horizon you'd think that all attention in Cyberworld would be focused on that historic event, which is being touted as the biggest IPO in its sector since Google (GOOG) stormed onto the scene years ago. Unfortunately for those that are monitoring this key situation as a pivot point for the exponential growth of Facebook's online dominance, some sideshows are playing out that are hardly irrelevant and are stealing some of the thunder from the main event, which is the Facebook IPO.
Facebook's rise to Internet stardom has been accompanied by Yahoo!'s (YHOO) fall, thanks to Google and other growing competition. AOL (AOL) is another former Internet giant that has fallen on hard times over the past years, while Microsoft's (MSFT) Bing has hardly stolend market share from Google since its inception.
Since the battle of today's giants is not so easily won in cyberland, Yahoo! has decided to take the battle to the courtroom, where it argues that Facebook has infringed on certain of its patents and technology. In turn, in what has become what some may consider a circus playing the suit and counter-suit routine, Facebook has also claimed that Yahoo! is infringing upon certain of its proprietary technology.
The fact that Yahoo! has taken to the courts what it couldn't do in on-line battle, which is regain its past allure as an Internet giant and compete against the dominance of Google and Facebook, demonstrates the power of the patent in today's business culture.
Patent protection comes up on a near-daily basis in the world of drugs, pharmaceuticals and start-up biotechs, but it also plays out in the technology arena just as much, if not more, as technology evolves so quickly that new patents need to be filed on a constant basis just to keep up.
The protection provided by patents is also an undoubted necessity, as the incentive to develop new technologies loses its luster if the developer does not hold an exclusive market for a determined period of time following its technological advancement.
Where it becomes interesting, however, is when all of these technology developers operate in such similar fashions, the patents each company holds starts to become almost as important as the advance of new technology - and some could argue it also becomes a detriment to development, as these companies spend a growing amount of energy and resources arguing over what's on the market now, rather than fully concentrating on what's to come.
The value of the patent cannot be taken lightly.
Not to be outdone by the Yahoo!-Facebook patent circus, Microsoft (MSFT) just paid AOL a billion dollars to purchase over 800 patents from AOL (AOL). A billion dollars. In addition, AOL grants Microsoft a license to utilize any remaining patents that may still be retained by AOL after the deal is complete.
Shares of AOL were flying on the news of the billion-dollar cash influx, not at all surprisingly, while MSFT and YHOO have traded relatively unchanged through the week.
Investors hardly have the option of investing in a company based on its patent coverage.
In today's world of information overload, it takes long enough going through press releases, SEC filing, websites and trends to have the time or incentive to start dabbling in awarded patents; after all, that's what the lawyers do when these companies take the game to court.
But the value of these patents is ever-increasing since the competition on the battle field is becoming so similar and tight. The surprise boon to investors of AOL as a result of the Microsoft deal is a testament to that fact. It also makes you wonder what new technology could have been forthcoming had MSFT found it more valuable to drive development forward with that billion bucks rather than spend it on the patents, because one has to have the impression that the move was a preemptive preparation to go to war with someone else, just as Yahoo! did when it felt the wolves circling.
Meanwhile, Facebook is till preparing for its IPO.
The company chose the Nasdaq over the NYSE last week to become its trading board of choice and also made a billion-dollar splash of its own, right around the time Microsoft spent a million on AOL patents, with the purchase of Instagram, a company whose photo-sharing technology has quickly grown into an Internet sensation.
CEO Mark Zuckerberg noted to investors that they should not expect Facebook to spend its free cash in this manner too often, if at all again, but the company liked Instagram's infiltration into the mobile market, the next arena where Facebook may be targeting for dominance.
The purchase of Instagram has sparked some comments that another photo-sharing company, Shutterfly (SFLY) could become a buyout target of a Facebook competitor, although investors may hardly believe that noise given the unimpressive price action this week.
If nothing else, the recent moves to the courtrooms by some of these big players is an indication that no longer are these guys going to battle it out just in the realm of cyber space. And regardless of what technology is thrown the way of the Internet, the company - or companies - that come out on top may be the one(s) with the sharpest lawyers and biggest war chest of patents.
For Microsoft's sake, let's just hope the patents hold a little more weight than the technology that dropped AOL from being THE online giant a few years back to an after-thought in cyberland today.
Disclosure: No positions.
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